Planning in a Volatile Market
The landscape for marketing your products is changing so quickly it is hard to keep track of the changes that occur on almost a daily basis. I’m tired of hearing the term “uncertain times” during the coronavirus pandemic. Has there ever been “certain times”? Definitely not when it comes to ag markets!
I’ve been spending quite a bit of time helping Ranching for Profit School alumni apply the economic model to re-do their planning for 2020 with the changing markets. If you listen to the popular press you would think that current events are going to wipe out many ranching businesses. From the businesses I’m reviewing this simply isn’t true. Everyone I’ve seen can put together a plan that shows a path forward. Some may not hit their profit targets this year, but others are finding real opportunities to serve customers and create cash flow for the business.
At the time of this writing, futures prices estimate 500 lb steers in Wyoming projected at close to $900 for this fall. Can you put together a plan based on $900 calves that creates enough margin to cover your overheads and profit target? If not, what can you change that is within your control?
- Is the gross margin of your enterprise where it should be?
- Are your overheads too high?
- Is turnover appropriate?
Which of those three aspects is the weakest link? What are three strategies to address it?
Answering those questions will take away a lot of the “victim” mentality so prevalent today and empower you, the manager to take control of the things you can control.
Some considerations when planning in volatile markets are:
- Smash your crystal ball – Let’s be honest…. No one knows what the market will do next week, let alone 6 months from now. We tend to way overestimate our abilities to forecast markets when you catch yourself doing it, put your hand out in front of your face and smack yourself on the forehead.
- Use today’s prices in your planning – Don’t rely on averages looking backward. Using futures prices that you can protect is the same as using today’s price in a sense.
- Using known seasonal variations is fine – Some markets have more reliable seasonal variations than others (cull cow markets are pretty reliably seasonal).
- Include others – Developing and evaluating strategies is best done with a team. As Stan Parsons said, “None of us is as smart as all of us”.
If you feel like these markets are taking you for a ride it is time to get in the driver’s seat and take back control. Focus your efforts on the things you can control: your costs, your overhead structure, forward pricing, and alternative marketing outlets.